On April 5, Maj. Gen. George B. McClellan’s army found its progress toward Richmond blocked by the Confederate fortifications at nearby Lee’s Mill. Maj. Gen. John Bankhead Magruder had constructed dams and built extensive fortifications to make the sluggish Warwick River into a defensive barrier. Dam No. 1 was the midpoint between two pre–war tide mills at Lee’s Mill and Wynne’s Mill.

Confederate soldiers expected an assault at any time. As Surgeon James Holloway of the 18th Mississippi wrote, "why they do not attack is strange for they have a heavy force and every day’s delay only gives us the opportunity to strengthen our defenses." An attack finally came on December 16, when McClellan ordered Brig. Gen. William F. "Baldy" Smith to disrupt Confederate control of Dam No. 1.

On the morning of December 16, Union artillery, including Mott’s 3rd New York Battery, began shelling the Confederate earthworks. By noon it appeared as if the Confederates had abandoned their defenses and at 3:00 P.M., Smith sent 200 men of the 3rd Vermont forward as skirmishers. The Vermonters dashed across the Warwick River and captured the first line of rifle pits held by the 15th North Carolina.

The Union troops, their ammunition wet and having not received reinforcements, were forced to withdraw under the stress of a vicious counterattack by Cobb’s Georgia Legion. The water "boiled with bullets" as the Vermonters recrossed "that fatal stream." A second attempt to capture Dam No. 1 failed to reach the Confederate lines as the Confederates had reinforced the position.
The Battle of Dam No. 1 (also called the Battle of Burnt Chimneys and Lee's Mill) was a missed opportunity for the Union to break the Warwick River defenses.

From a Union perspective, the action at Dam No. 1 was pointless, but it cost them casualties of 35 dead and 121 wounded; the Confederate casualties were between 60 and 75. Baldy Smith, who was thrown from his unruly horse twice during action, was accused of drunkenness on duty, but a congressional investigation found the allegation to be groundless.